Pressing the Money Button

When Henry Ijams looks at the way American businesses pay their bills, he sees a mess. "Our European counterparts are flabbergasted when they come to the U.S. and they see that we still make 80 percent of our business-to-business payments by paper checks; they can't believe it," says Ijams, managing director of PayStream Advisors, a Charlotte, North Carolina, consulting firm that helps clients straighten out their bill-paying systems.

On the other side of the Atlantic, the situation is reversed, says Ijams: 80 percent of B2B payments are made electronically because Europe has developed a sophisticated electronic-payment infrastructure. "Here in the U.S.," he observes, "we've developed an infrastructure that is extremely effective at managing paper."

American businesses remain bound to paper checks largely because banks and enterprises haven't yet agreed on a universal electronic system for moving money between payers and payees. While just about everyone — banks, businesses, accounting firms, enterprise software vendors — agrees that payment technology is a splendid idea in concept, heated competition in the realm of electronic bill presentment and payments (EBPP) has led to a variety of different and often incompatible systems.

If all of these systems — or at least the leading technologies — could be interconnected into a unified enterprise payments system, the result would be "a single database that collects all the data, acts as a centralized point for reporting, and also allows you to make decisions in real time," according to Aaron McPherson, payments research manager at Framingham, Massachusetts-based research firm Financial Insights.

In practice, managers or executives would be able to summon up a payments dashboard on their screens whenever it was time to pay, or collect on, a bill. The dashboard would be an integral part of a company's enterprise resource planning (ERP) or customer relationship management (CRM) system, drawing key financial information from all sectors of the business' operations. The technology's potential benefits include more control over scheduling and managing payments as well as the ability to reconcile multiple billing systems and trading relationships. "We have good systems in place to move money around electronically," notes Ijams, but not on handling "the detail of what's included in those payments."

Yet despite the potential benefits, progress toward an enterprise payments architecture has been exceedingly slow; simple inertia is perhaps the biggest impediment. "Payment systems are notoriously long-lived, with myriad interdependencies and extremely high reliability requirements," says McPherson. Progress has also been dampened by the EBPP industry's multiple vendors, each of which harbors the hope that its technology will someday evolve into the industry standard. "That's one of the reasons people have a lot of other systems that they're using — and software that they often have to integrate with their ERP systems," observes Beth Robertson, a global payments senior analyst with Tower Group, a financial-service research firm in Needham, Massachusetts.

Since businesses, banks, and EBPP vendors aren't likely to budge on their own, the future of enterprise payments probably lies in the hands of vendors and consultants searching for "the next CRM" or "the next ERP." For these companies, enterprise payments technology "promises billions of dollars of new revenue in software, hardware, systems integration, business process redesign, and outsourcing," says McPherson.

At least one CRM vendor, Siebel Systems, is starting to take enterprise payments seriously. Last month the San Mateo, California-based company paid $115 million to acquire EBPP vendor edocs, with the goal of integrating the Natick, Massachusetts company's technology into its software. Although edocs' payment system is far from universal, it has been adopted by an array of major enterprises, including Target, Lowe's, Verizon Wireless, Franklin Templeton, and Fannie Mae, to ease the pain of managing bills and other commerce-related documents. According to Robertson, the Siebel-edocs deal indicates the interest of ERP and CRM vendors in "offering more comprehensive and deep functionality, so that customers won't have to buy multiple [payment] systems."

Enterprise payments proponents can also be expected to play the Sarbanes-Oxley card, since the current piecemeal approach to payments is enshrouded by a lack of visibility. "Once you send the invoice out, you don't know when they received it," says McPherson. "Once they've received it, you don't know when they've approved it for payment. If they've sent the check out, you don't know when it's going to arrive." By providing detailed reporting functions, enterprise payments will allow businesses to follow the payment trail from the instant an invoice is issued until the moment the payment clears, fulfilling Sarbanes-Oxley visibility requirements.

Of course, to drive home their case for electronic payments, vendors and consultants must convince businesses that the technology provides significant bottom-line benefits. "For the rank-and-file Fortune 500 companies with mostly domestic settlements," maintains Ijams, there's a business case to be made for "improving control, consolidating disbursement activities, lowering overall fees, and becoming better at managing capital."
He acknowledges, however, that as of now no one has quantified the savings — which is why the payments picture will probably remain messy for the foreseeable future.